HEAD OF PUBLIC SECTOR, ACCA
LAST week, the Treasury published the unaudited whole-of-government accounts for 2009/10. This was a landmark moment for public finance in the UK, as it’s the first time that this has happened; the idea of publishing the accounts was floated in the mid-90s, so this is something that we’ve been waiting a long time for.
There are a few noteworthy pieces of information that popped up in these accounts, which represent causes for concern. The accounts show: over £1 trillion in public sector pension liabilities; £80.9bn of expenditure in 2009-10 used to fund the financial deficit; and the government’s net liability of £1.2 trillion, representing 84 per cent of GDP.
The £1 trillion pensions liability figure deserves further scrutiny, as it’s quite likely to be an underestimate. The figure in the accounts only allows for salaries projected to retirement or an earlier leaving date, and the number of years service to date. What the figure doesn’t include are the pensions that may be paid to current employees in respect of future years of service up to retirement, or to future employees. Without including these figures, it’s fair to assume the £1 trillion is only the beginning.
There are also quibbles that could reasonably be raised around several other issues in the accounts: a number of accounting adjustments might have to be made for local government accounts as they weren’t accounting on an IFRS (International Financial Reporting Standards) basis in 2009/10; the completeness of the accounting for PFI, as with pensions liabilities, isn’t necessarily unquestionable; and there are issues about whether the level of provisions to cover write-offs, such as student loans, represent a fair estimate.
The way the Treasury has accounted for the nationalised banks is notable too, and represents a significant departure from the government’s Financial Reporting Manual (FREM). The Treasury has chosen not to consolidate the banks on the basis that doing so would distort financial performance. However, this is likely to lead to an audit qualification due to the material amounts involved and the departure from generally accepted accounting practice.
Despite such problems, the Treasury deserves credit for finally publishing the accounts. Consolidating UK plc is an unenviable task, but the Treasury has come up with a user-friendly set of accounts that are upfront about potential qualifications and provide a good explanation of differences between the whole-of-government accounts and the national accounts produced by the Office of National Statistics.
At a time when public spending is going to dominate the political debate for the foreseeable future, the ability to hold government spending to account and conduct debates with the full facts available is crucial. Some of the figures may be open to debate, but actually publishing the accounts is a step in the right direction in terms of the accountability and transparency of public funds. It’s never been done before, but comes at a time when public sector transparency is crucial to business performance.